To: H-1B/L-1/offshoring e-newsletter 189

I'll be reporting here on an academic paper by Amy Kandilov, a Vivek
Wadhwa blog posting, and relating both to the recent Mithas and Lucas
study.

I've been stating for years that one doesn't need any data (though
plenty exists) to see that H-1B workers make less money than comparable
Americans (with "comparable" being a key word):  Since it's difficult
for H-1Bs to switch jobs, and basically out of the question if they are
being sponsored for a green card, they have a narrower range of
opportunities than do those who are U.S. citizens or permanent
residents.  Thus, on average H-1Bs will be underpaid, relative to
comparable Americans (the latter a shorthand, though technically
inaccurate, term here for U.S. citizens and permanent residents).

When I explain the mathematical issue to students, I call it the Big
Bag, Little Bag Principle.  Say you have two bags, filled with bills of
various denominations.  The big bag has every bill the little bag has,
AND MORE.  You are allowed to choose a bag and then choose a bill from
that bag, with a full view of everything.  Which bag should you choose?
Of course, the big bag!

I also tell my students not to make decisions on the basis of a single
study.  Look at multiple studies, and most importantly, see if they jibe
with what you know qualitatively about the subject.  So, in addition to
the many studies showing that H-1Bs are underpaid relative to comparable
Americans (including two congressionally-commissioned employer surveys
in which the question was asked directly), one also has the qualitative
backing--the Big Bag, Little Bag Principle, applied to the lack of
mobility of the H-1Bs.

In my recent reviews here of a new paper by Mithas and Lucas (see
http://heather.cs.ucdavis.edu/Archive/MithasLucas4.txt), I emphasized
that although I consider their data set to be invalid for the topic at
hand (H-1Bs in the computer industry) and their general conclusions are
quite different from mine, Mithas and Lucas do agree on my point about
the Big Bag, Little Bag Principle.  They cite this as the reason why
they found that green card holders got higher salaries than H-1B
workers.

Vivek Wadhwa, a proponent of immigration programs for tech workers,
recently cited the Mithas/Lucas paper as supporting his positive views
on such programs, but also states that he too agrees with me on the Big
Bag, Little Bag Principle.  He says;

   The study also highlighted an issue that I have written about: these
   workers are earning less than they should. Because of a flawed
   immigration system, the U.S. has admitted large numbers of workers on
   temporary visas, but has never increased the number of permanent
   resident visas (also called green cards) to enable these workers to
   make America their home. Waiting times for green cards can be longer
   than a decade, and while workers wait in queue, they can’t easily
   change jobs.  Employers often take advantage of the situation.
   Indeed, Lucas and Mithas found that H-1B visa holders earned 6.1%
   less than equivalent green-card holders.

I'll have much more to say about Vivek's blog later in this posting, but
for now let's stick to Big Bag/Little Bag point.  Vivek points out that
the M/L data would indicate a 6.1% premium accruing to H-1Bs when they
get their green cards.

But 6.1% is not very much.  Again, I don't think the M/L data are
representative, for the reasons, I've given, but compare this figure to
the others that research has found:  15-20% in my studies, 33% in the
UCLA study, etc.  See my University of Michigan article for details,
available online at http://heather.cs.ucdavis.edu/MichJLawReform.pdf

Well, the other day, I came across a 2007 study by Amy Kandilov, then a
doctoral student (coincidentally at the University of Michigan), titled
The Value of a Green Card: Immigrant Wage Increases Following Adjustment
to U.S. Permanent Residence.  This study is different from those done by
the rest of us (M/L, myself, UCLA, etc.), in that the Kandilov study
analyzes data for new green card recipients, Princeton's New Immigrant
Survey.  Moreover, the data state which of the respondents got their
green cards through employer sponsorship.  This is very valuable data.

The NIS data is not perfect either.  It is far too coarse in its
handling of region, it mixes data sets and so on.  Most importantly, it
does not have before-and-after salary data.  Instead, it has the salary
of the new immigrant and the salary he made when first coming to the
U.S.  For that reason, Kandilov had to match the immigrants with similar
Americans (she stuck to natives, not even naturalized citizens), using
propensity analysis and the Current Population Survey data.  That way
she could compare how much the immigrants gained in salary over the
period from entry to the U.S. to the time of acquiring a green card,
compared to what salary increase they WOULD have had during that period
if they had had full labor market mobility like Americans do.

Here's what Kandilov found, as she writes in her abstract:

   The results from the nearest neighbor propensity score matching
   indicate that becoming a permanent resident is accompanied by at
   least an 18 percent wage increase for employer-sponsored immigrants.
   Additionally, I use kernel matching to confirm that immigrants who
   receive green cards experience a 25 percent gain in wages between
   their first U.S. job and the job they hold after receiving permanent
   residence.

That 18-25% range is consistent with the previous studies I mentioned.
Moreover, it is consistent with the special-skills argument employers
make in justifying their green card sponsorship.  In the computer
industry, for instance (20% of Kandilov's sample), here were typical
salary premiums for special skills around 2002:

Oracle DBMS tool    24%
SAP                 24%
HP UNIX             20%
Visual C++          20%
Java                16%

Now, as I've detailed before, the legal prevailing wage is NOT the
market wage, due to a number of gaping loopholes.  So, ironically, the
employer can say "I need to sponsor Mary for a green card, because she
knows SAP," but that same employer does not have to factor in Mary's SAP
skills when he calculates the legal prevailing wage for her.  So he gets
a 24% "discount" (more, if Mary has several of these skills) in hiring
her as an H-1B, all perfectly legal.

At any rate, Kandilov's finding does jibe with these other figures.

Now, concerning other aspects Vivek's blog posting, he too comments on
the nature of the Mithas/Lucas data set, but with a very different spin:

   The data Lucas and Mithas analyzed did not include all tech
   professionals: Information Week readers are typically I.T. workers in
   large and midsized American corporations. The researchers say that
   they compared their sample with that of other studies and believe
   that this is more representative of the tech industry than any other
   research. And unlike other studies, this compares apples with apples
   (previous research has looked only at aggregate data, not at
   individual education and skills). The Lucas/Mithas study clearly did
   not account for the shoddy body shops that break the law and underpay
   their workers.  But it is likely to be representative not only of the
   Information Week readership, but also of foreign-born I.T. workers in
   Silicon Valley. (Silicon Valley tech workers usually have the same
   advanced educational background and receive the same competitive
   salaries as their brethren in the I.T. world.) These are the skilled
   immigrants that American industry needs—to remain globally
   competitive.

As I have shown in detail in recent postings, InformationWeek readers
(the source of M/L's data) are not relevant to the issue of H-1Bs in the
computer field, because IW's audience is largely semitechnical.  I've
mentioned, for instance, IW's job ads from a given issue:

   %  D. E. Shaw Research seeking Chief of Staff in New York, NY.
   %  Switch and Data seeking Sr Product Marketing Manager in Tampa, FL.
   %  Kadrmas, Lee and Jackson seeking Network Architect in Bismarck, ND.
   %  Osram Sylvania seeking Benefits Specialist in Danvers, MA.
   %  AccuWeather seeking Business Development Manager in Atlanta, GA.

Only one of these, the network architect position, is a technical job.
InformationWeek is NOT typical reading by software engineers, say at
Google or Apple.  As I also mentioned, the M/L mean years of experience
for H-1Bs in their sample is much larger than those of H-1Bs in general,
etc.  It's just a different population.

But Vivek is completely wrong in saying that the underpaid H-1Bs are
mainly in the "shoddy body shops that break the law and underpay their
workers." 

First of all, as I said above, one can underpay H-1Bs and yet be in full
compliance with the law.  Vivek has said this too
(http://www.american.com/archive/2008/july-august-magazine-contents/america2019s-other-immigration-crisis):

   I know from my experience as a tech CEO that H-1Bs are cheaper than
   domestic hires. Technically, these workers are supposed to be paid a
   "prevailing wage," but this mechanism is riddled with loopholes.

Indeed, a couple of years ago Vivek graciously consented for me to write
up the details of his employment of H-1Bs, in a posting to this e-newsletter
(http://heather.cs.ucdavis.edu/Archive/CaseStudyH1BUnderpayment.txt).
He for example was able to hire an H-1B of top talent, with a Master's
degree and some experience, for about 15% less than he would pay an
American of ordinary talent and no experience--again, fully legally.

Secondly, it's not just the "shoddy body shops."  Presumably Vivek
doesn't consider the two companies he founded to fall in that category,
and more importantly, the mainstream, household name industry firms use
H-1Bs for cheap labor too, as I've shown before in detail.  By the way,
the bodyshops would not be in Kandilov's sample, as they sponsor very
few of their H-1Bs for green cards.

Finally, one more point on Big Bag/Little Bag:  Vivek, and many others,
conclude from this that the "remedy" is to give fast-track green cards
instead of H-1B work visas to foreign graduates of U.S. universities.
Although this would address the issue of exploitation, it would NOT
protection for American workers (natives, naturalized citizens, green
card holders).  Again, one of the most overlooked issues about H-1B as
cheap labor is that, even with salary parity, the H-1B program provides
employers with a vehicle for rampant age discrimination.  It expands the
pool of younger (thus cheaper) workers, whom employers hire in lieu of
older (thus more expensive) Americans.  The beneficiaries of the
fast-track green card proposals would, by definition, be young, and thus
would produce the same problem for older (age 35+) American workers.

I've enclosed the Wadhwa blog below.

Norm

http://wadhwa.com/blog/2010/05/29/why-policy-makers-should-review-the-facts-before-marching-to-the-drumbeat-of-the-xenophobes

Vivek Wadhwa

Tech Entrepreneur, Academic, Researcher and Writer

May 29, 2010 Post Under TechCrunch

Why Policy Makers Should Review the Facts Before Marching to the Drumbeat of
the Xenophobes

The H-1B visa has become the beachhead in the battle against the legal
immigration of skilled workers. This is because it allows highly
educated, skilled workers from abroad to take employment in the U.S.
and eventually become citizens. Anti-immigrant groups believe that they
can close the door to foreigners by restricting or abolishing the visa.
So they have been trying to convince lawmakers that H-1Bs depress wages
and take jobs away from American workers. To prove their point, they
highlight examples of unscrupulous body shops that underpay their
workers, and they cite questionable research published by other
anti-immigrants. But a new peer-reviewed study, published in Management
Science, a top academic journal, challenges these claims. This research
finds that foreign-born I.T. professionals on temporary work visas
actually earn more than their American counterparts; and that limits on
H-1B visas cause the salaries of foreign workers--rather than of
Americans--to increase. This, along with research completed by my
colleagues at UC-Berkeley, Duke, and Harvard, confirms what most people
in Silicon Valley already know: that foreign-born I.T. workers
complement American professionals and make the pie bigger rather than
take jobs away.

This new study was completed by University of Maryland professors Hank
Lucas and Sunil Mithas, using data from a survey of 50,000 I.T.
professionals that InformationWeek and Hewitt Associates conducted from
2000 to 2005.  After adjusting for educational qualifications, work
experience, and other individual characteristics, the researchers found
that I.T. professionals without U.S. citizenship earned 8.9% more than
U.S. citizens. Tech workers on temporary visas were paid 6.8% more than
those with U.S. citizenship; green-card holders took home 12.9% more
than their American-born counterparts. In years when Congress increased
the numbers of visas available, salaries of foreign workers fell. The
salary premium for H-1B holders was 10.6% in 2000; 8.1% in 2001; 17.5%
in 2004; and 4.7% in 2005. This corresponds to a visa cap of 115,000 in
2000; 195,000 in 2001; 65,000 in 2004; and 85,000 in 2005 When the
number of visas rose, the corresponding salaries shrank.

To explain why firms pay more to foreign I.T. professionals, the
researchers speculate that such foreign workers supply intangible human
capital: knowledge of markets and cultures outside the U.S.; social
relationships with colleagues at firms located in their home countries;
access to networks in home countries and the ability to spot,
circulate, and mix ideas and skills from different parts of the world.
Foreign-born I.T. professionals are also usually willing to travel for
extended periods. The researchers say that because the proportion of
the sales and revenue that companies receive from abroad is increasing,
they need to hire more I.T. professionals who are familiar with foreign
culture; language; and business practice.

UC-Berkeley dean and professor AnnaLee Saxenian refers to the
foreign-born professionals in Silicon Valley as the "new Argonauts".
She says that over the past three decades, the region's immigrant
professionals have helped open foreign markets; identified overseas
sources of talent and innovation; and pioneered long-distance
partnerships. Far from being zero-sum, this process continues to expand
economic opportunities for both Silicon Valley and its collaborators.
She says that foreign nationals are clearly a complement to the native
workforce, their diverse perspectives and global networks being
catalysts for local innovation.

The data Lucas and Mithas analyzed did not include all tech
professionals: Information Week readers are typically I.T. workers in
large and midsized American corporations. The researchers say that they
compared their sample with that of other studies and believe that this
is more representative of the tech industry than any other research.
And unlike other studies, this compares apples with apples (previous
research has looked only at aggregate data, not at individual education
and skills). The Lucas/Mithas study clearly did not account for the
shoddy body shops that break the law and underpay their workers.  But
it is likely to be representative not only of the Information Week
readership, but also of foreign-born I.T. workers in Silicon Valley.
(Silicon Valley tech workers usually have the same advanced educational
background and receive the same competitive salaries as their brethren
in the I.T. world.) These are the skilled immigrants that American
industry needs--to remain globally competitive.

The study also highlighted an issue that I have written about: these
workers are earning less than they should. Because of a flawed
immigration system, the U.S. has admitted large numbers of workers on
temporary visas, but has never increased the number of permanent
resident visas (also called green cards) to enable these workers to
make America their home. Waiting times for green cards can be longer
than a decade, and while workers wait in queue, they can't easily
change jobs. Employers often take advantage of the situation. Indeed,
Lucas and Mithas found that H-1B visa holders earned 6.1% less than
equivalent green-card holders.

There is a far more serious problem brewing: we're not letting the
foreign-born workers start companies and boost the economy, so they are
leaving. Consider that 52% of Silicon Valley companies started in
1995-2005 were founded by immigrants. There are now hundreds of
thousands of highly educated and skilled workers who also could be
starting companies that are stuck in "immigration limbo". Many are
getting frustrated and returning to their home countries. Others
languish in the same jobs they had when they stated their
green-card-application process; just as they can't change companies,
they can't receive a promotion, so if they started as a computer
programmer, they can't become an architect or manager.

Policy makers are used to the constant drumbeat of the xenophobes. To
educate policy makers on the facts and to make them aware of the
green-card backlog, a group called Immigration Voice is organizing
Advocacy Day on June 7 and 8 in Washington, D.C. This group represents
the foreign-born I.T. workers sampled in the Lucas/Mithas study and
more than 250,000 doctors, PhDs, research scientists, scholars,
engineers, and professors also stuck in the green-card backlog.
Hundreds of Immigration Voice members will be travelling to the
nation's capital to tell their stories. They have set up more than 400
meetings with members of Congress and the Senate. Let's hope they get
through and introduce a little logic into the immigration debate.